Fighting poverty and child malnutrition: on the design of foreign aid policies

In this paper, we have developed a two-period overlapping-generation model featuring the effects of child nutrition in developing countries. The model gives rise to multiple equilibria including a poverty trap. It shows that child nutrition status may affect the development of human capital unfavorably and leads countries into poverty. Various exogenous foreign aid policies implemented by international organizations such as the World Food Programme (WFP) are considered. School feeding programs can solve social problems like child labor. However, they do not necessarily help countries to achieve economic development. On the contrary they can lead to poverty if the initial human capital is low. Only if the subsidies are large, can they prevent a country being trapped in poverty. If the WFP provides a fixed amount of food to households, then a quality/quantity trade-off takes place: Parents decrease the nutrition of their offspring and increase the number of children they have. Consequently, total nutrition decreases and the developing country gets locked into poverty whatever its level of human capital. At the end of the paper, we estimate the changes in human capital from a sample of 66 developing countries (almost half of which are African countries), and use the estimates to explore the quantitative effects of the model. The model is then calibrated under different production functions. The results confirm the theoretical predictions.